TheEsteeLauderCompaniesInc 2010 AR-Web

8/3/2019 TheEsteeLauderCompaniesInc 2010 AR-Web

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The EsteLauderCompanies

Inc.2010

annual report


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CONTENTS

3 ExEcutivE chairmans LEttEr

7 PrEsidEnt and chiE ExEcutivEOicErs LEttEr

10 thE YEar in rEviEw

59 OutLOOk

62 GLObaL succEssEs

64 POrtOLiO O brands

72 bOard O dirEctOrs

74 ExEcutivE OicErs

75 inanciaL hiGhLiGhts

79 inanciaL sEctiOn

151 manaGEmEnts rEPOrt OnintErnaL cOntrOL OvErinanciaL rEPOrtinG

152 rEPOrt O indEPEndEntrEGistErEd PubLic accOuntinG

irm On intErnaL cOntrOL

OvEr inanciaL rEPOrtinG

153 rEPOrt O indEPEndEnt rEGistErEd

PubLic accOuntinG irm

154 stOckhOLdEr inOrmatiOn


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2

Gie te le o ic o Co

oe o log-te coote tteg,

e et te cllege o te till-tlet ecoo

geetig oe o o et elt i e.

wiLLiam P. LaudEr


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de ello soole:

l 2010 eeo ye o te Ee Le cope. Ge y e le po o

copy oe o log-e opoe egy, e e e llege o e ll-le

eooy y geeg oe o o e el ye. tog e lle oo o o

oug eployee e leep o ou e Pee ce Exeuve Ofe, zo e,

i po o epo e ge e y po oe el ee og

le po. ipoly, e ee ee gol le eeg pe l eo-g

gg o.

we eg l 2010 e l o e Ee Le pge ae ng rep, hh

turned out to be the larget and mot ueful global launh n our htory. smultaneouly,

e pleee o, ye o, pl o efe e pelg eoo oo. togel plg ee eo, e ele oe $350 llo o o. t ele o

o o eoe o o o pog glol oppoe ele og po opeg

fo. we lo oe o eg ezg o ogzo, gg o e ope-

e o e oe ee opy.

3

EXECUTIVECHAIRMANSLETTER


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i y e ole Eee c, i e e plege o elg o e ol o ppe

po y-e oeoo e elo egloy o eg

oo. i e e o poel ge o e l goeg o e oe e

ope o e, i e o Eope o pe le e e o epl e

poe o g e l llog o elee o o ly po o ole

el ele. alog oe lee o o y, i le o oe o e eo o

peee o oly o e o y ege o pog e e po epeee

e, o ee, ge o o opeo. i ly elee e epoly o

e o poo o leep o eoe oe ely ole ppog oe ojee

ee poe e o ele o o e, i ooe o ply y p oel o o copy.

i m, i joe y o Je Le, Glol Pee Geel mge o o Og Ojo

ee o te Ee Le cope bo o deo, e l o Og

c, oe o o o eg e. t plly g ee o e

leoe o o copy e oe o ep o e c. a oe o e ogl

oe, i po o epo , o o jo o c poolo, Og og

ole poe.

I eliee tt te cce o co ee o

cotitio t ee leel.

a e e o o gee iee deelope coee, i e oppoy o elp

ge e ee qo o so coe. Oe o o eg o ly o ey

qe poog e oe o elee e oe elze e ll

groth potental. we hare trong ultural and trateg ynerge th smahbox and i have great

oee , oe e, ll e eelle o o o ol-l poolo o .

4


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I believe that the success o a company depends on contributions at every level. In addition to extending

my sincerest appreciation to all o our employees who worked especially hard in fscal 2010, I would like to

thank our exceptional senior management teams or steering the Company so ably during a time o great

change, both internally and externally. I am indebted to the Board or its excellent advice and guidance and

would particularly like to thank my ather, Leonard Lauder, who in his new role as Chairman Emeritus

continued to impart his passion, knowledge and wisdom. In addition, I want to express my gratitude to our

consumers or their continued enthusiasm or our products, our retailers who help express our brands

philosophies and our stockholders or their support o our Company.

I admire our Companys ongoing commitment to continue advancing our long-standing pledge o

corporate responsibility to make our workorce, our consumers and our investors proud. I am appreciative

o the many eorts o our brands and employees that help us, as a company, become a more responsible

global citizen.

Though I am cautiously optimistic that worldwide economies will begin to improve, I am confdent that

we are positioning our Company or long-term sustainable, proftable growth. We have a diverse portolio

o world-class brands, enormous geographic reach, a long history o entrepreneurship and innovation,

and a solid fnancial oundation. I am honored to be a part o shaping our vision as the leader in global

prestige beauty.

Sincerely,

William P. Lauder

Executive Chairman

5


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6

O ccee i fcl 2010 e tetet

to te tegt o Te Ete Le Coie,

te lolt o o le coe te

eictio o o eloee co te gloe.

abriZiO rEda


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de ello soole:

O ee l 2010 e ee o e eg o te Ee Le cope, e loyly o

o le oe e eo o o eployee o e gloe. depe oe o e o

eoo peo ee, o peoe og o y epe. my o o l

e pe ol ee e e ge poge eolg o ogzo o ee

ee e gg lpe o e glol ey y.

we eg e ye e el l o o o-ye egy e e eelle ey,

eoe y o l el. we e ge e eolg o ogzo, epg

o geogp peee, eg o glol ple gog e poly y o o

lge, ge-lg e. we elee go y eegg e, plly c

r, lee loely o o o eg oe. we eee gee l ple,

o oe o eoe o o gge ge oppoe. a el, e ee:

overallnetsalesgrowthof6%

recordgrossmarginof76.5%

recordcashowfromoperationsof$957million

areductioninstockkeepingunits(SKUs)of10%,whichhelpeddrivedownobsolescenceby

nearly25%

t eeo ye o lg eog po, ee oep. to e e,

clqe Ee bee cll d spo coeo Ee Le pge ae ng rep

epeee eoy e o e ol. a e e e, e eoe og

7

PRESIDENT ANDCHIEF EXECUTIVEOFFICERS LETTER


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oo L me regeeg se, ell ge pedknY. m.a.c e v

Gl o O Lp pg eg Ly Gg cy Lpe e o el pg

e 16-ye oy o e m.a.c aids , e el l o ae e ole e-oee

e oe o y eple o o e e oeg oe y epg o gl ple.

te copy lo e o o poe o epeog e o o oo oell poly.

we oo y ep o e ee e , gop, ee e o ply.

we e e l, eglly eey eo o oe e olele o o

Pepe. a ee o e e oeeeg e pl o ele, e loe e

le o pe pe oe o e-ellg po o o oe . tog ol

e eo e lo o ee ey eee poe gop o oe loe e

. a y leg, e e ee o oe oeg Pepe op-ellg po ole.

aolly, o a dege ge o oe ge poee. i g

o e y ee, oe pl le, pog o e o,

geg eoy eo g o o goo. we ll oe og o pog e

poly o e lle , e e goo l poge.

i eee, e e eogze o copy ge y o o poee o go

o leep poo glol pege ey. we ll e oe o o gol l o e

g poge ee e e oe o poze o ey e:

Creativity and Innovation: cey ll e o e oy, ooo e e.

hoee, o elze e lle poel o o oo, e oe o o oe

ole, llog e o e o po. by g oe -ep oe g o ge

o o, e o o le o e gee oppoe poe ee gee

eog po olo.

High-Touch: we ll pply o hg-to ee oel o pooe ol le goe eyo

pe o eology e y y o o el. O peolze oo

eo poel e po o eeo o opeo, plly

oe.

8


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Local Relevance: Being a truly global company means delivering the best experience, products and

services everywhere in the world. To make that possible we reorganized to better serve our global

consumers. We created a Corporate Marketing Center o Excellence to help give our brands greater

local consumer insights which we will use to create more targeted products and services.

Enhancing Digital Capabilities: Communicating with consumers is changing as rapidly as the

technology which enables it. Today, communities are no longer defned by proximity to others.

Conversations happen 24/7 across a variety o platorms and geographies and consumers have

become the voices o our brands. We are strengthening our skills so that we lead not only in traditional

e-commerce but across all orms o social and digital media to better understand, engage and serve

our consumers.

We made antastic progress in the frst year o our our-year strategic journey and have built a solid

oundation. Our early successes reinorce our vision and give us the confdence that by building on our

unique strengths and executing our strategy with excellence, we will become an even stronger competitor

across the entire beauty landscape.

In closing, I want to thank our more than 31,000 employees across the globe or their extraordinary eorts

and their unwavering commitment to our organization. I also want to thank William Lauder or his

tremendous support, partnership and guidance. Additionally, I thank Leonard Lauder and the entire Lauder

amily or entrusting me with the privilege to lead this great Company. I am also extremely appreciative to

our Board o Directors, my leadership team and our retailers and consumers or their support o our brands

and to you, our valued stockholders.

We are proud o our many accomplishments in the frst year o our strategic plan, but know that much work

still lies ahead. As we embark on the next phase o our growth we will hold onto our core amily values,

historical strengths, creativity and entrepreneurial spirit that are ingrained in our heritage and culture.

I look orward to evolving our journey in the years to come.

Sincerely,

Fabrizio Freda

President and Chie Executive Ofcer

9


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we e g poge g o eg e, eleg og l el

gg e g pege opeo eey ego. we poe lge ogo

the organzaton and made great headay toard beomng a better ntegrated, global company

oo eg o. te ee o e p ye o o egy og

y og o ollo pple e e poe o go o leep glolpege ey.

a ey p o ou egy, e egee ele ou ogzo pe y eegg

le, pog egol ple, egg eg l-ol leep

e lyg poee, ole eo g. te el? a ogzo oe oe,

oe gle gee ly o p o, , gg ey lpe.

10

THE YEAR IN REVIEW

FIsCaL 2010 was an ExCELLEnT yEar FOr

ThE EsT{E LaudEr COmpanIEs.

Cliniques Even Better Clinical Dark Spot Corrector is the rst

beauty product in department stores whose results rival a

prescription-strength product or addressing uneven skin tone.

riGht: clqe Ee bee cll d spo coeo.


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11


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wE arE wOrkInG hardEr Than EvEr TO

undErsTand Our COnsumErs and buILd

EvEn sTrOnGEr rELaTIOnshIps.

te glol pege ey y eog oe ople opee eey y. hoee,

oe o e y l oe o e ol o eloe e-o

, e elee, oe o o eoo ool eg. wle e ol eooe

e ele, e elee e y oe o go, te Ee Le cope ll e

e oeo. i , e e ley eg o ele o o. t p ye, e ge oe

oe pee e o glol pege ey, e e ll e o oe e ye o oe.

alog oe peg y e o y p o e ol, ee ge po o o

po, ee oe e gog oe el. i , e eogp g

o e e og geg oge. ree o y 2015, glol oe pg

poe expee o ee y $5 llo euy e egoy ee oue e o lely o

pe oey o e oo log. E oue o pug gee e o eeou oppouy,

e e og e eve o ee ue ou oue ul eve oge oe

loyl elop. ho e e og ? by leg leg.

15

a changinglandscape

tOP: ble le te b.sylgb sop bloogle 59 see, ne Yo cy.bOttOm LEt: ae spe nl olleo.bOttOm riGht: m.a.c Jp ole e-oee e.


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Oe eple o o e e lze eepe oe g o g o po ee

e l o clqe Ee bee cll d spo coeo. i pepo o e eo o

oe po, e e eee oe o ll ge ee o e gee

oe oee , elly, ypepgeo e e oe e oe o

oe ole. iog olo o eologl ee, clqe Ee bee cll e

f euy pou epe oe oe eul vl pepo-eg pou o eg

ueve oe. i oo ege eg pg eopg tv, gl

p, e po eoe glol poe ol e e g o clqe e

ue se.

aoe oeoy oo L me regeeg se. te oo ge o e

oppoy o oe qe po ol ely ele o e poe o -gg

oe, oe o e gge poe o pege e oe. by egg L me popey

g-ege eology, e se pelly ee -gg eg og l le.

we elee e e o te regeeg se e elg ole-g le go

o e ee L me e l gl oe ll ple g le o ly.

moeoe, eoe e poe e e oe o elze leg loely o o oe

ee eleg o e e ole e.

te g, e e leg e oe o pe e ee o o oe, gg

e o oly ey ge oy, ey le o ooo.

tOP: Ee Le bel pg.bOttOm: L me te regeeg se.


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eeele.o


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The global launch o the 2010 M.A.C Viva Glam

From Our Lips campaign, eaturing Lady Gaga andCyndi Lauper, has been the most successul ever.

To date, Viva Glam has raised over $180 million

to help ght and elevate awareness o HIV/AIDS

around the world.

LEt: m.a.c v Gl o O Lp pg.riGht: m.a.c Le Eo v Gl Gg lp.


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te Ee Le cope ly ee ee oe oy e e, oe ee, lee

ovo. we eleve o e e lee glol pege euy, e u ul upo ou evy

e ly o oe, g e e oe g, e e ey e e e

eee ey eo pe e e o oe. we ll eg ey-e,

oe-pe opy e eee o o e e o e pl o ele le,

pole go.

we pply oep y loog e ee o ee oe ole, g

oe -ep oe g o pe o o o le o pog ee gee

eog.

i epoe o e gog oe e o po e olly eoelly epo-

le, ell eee, e le pedknY, o ge ee o plo o ly.w e l o pedknY, e elly ee e pe ge e

oee. i e f ee o o lu, puedknY e og e op fve pege ge

o Eope, plly ell e ue kgo el el, epg po e

e o e ell-ele dknY .

wE arE a CrEaTIvITy-drIvEn,

COnsumEr-InspIrEd COmpany.

creativity &innovation

riGht: dknY pedknY ge pg.


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O ey ly o oe l opoe o o e ee ell eyo

po oo. m.a.c ml so, o eple, pee o ee lee epeee

pe o p--og ege o oe e ey g spg 2010 ne Yo o

wee. te o ey, m.a.c eoe leep og poeeg olloo o

pe e pole o ege, poogpe, e e, yl ep .

i l eple o o e e lg po o ol eg, e Ee Le e

cee mep deo, to Pee, ge ee e dee L ll 2010 o o pee o

e ol olo Ee Le e ll. ae Le, Ee Le seo ve Pee

cee deo, oe loely to o ee e olleo e gey o ppo . te

pee o e Pe colo olleo olo e e ge olee

g-pole y o. be o e l epoe o e olleo, e e oe to og e

o ey o eo ll oe o-oo oe g ee zz

eo o o fgp .

23

Aerin Lauder, Este Lauders Senior Vice President and

Creative Director, worked closely with Tom Pecheux,

the brands new Creative Makeup Director, to create the

dynamic, ashion-inspired Pure Color collection.

tOP: Ee Le ble dl Pe colo pg.bOttOm LEt: ae Le to Pee.bOttOm riGht: Ee Le Pe colo Glo.


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a te Ee Le cope, e qly o o po, oe o oe o eleg

og peolze ee eo, oe ogee o ele peo peoe

ee og eool o o oe. i e ll hg-to. O hg-to oel

eee ge y llog o ee oe o oe, eee e epe-

o poe ol le goe eyo pe o eology. i pple o ll e o o

epo, pgg, eg, oue expeee, euo uo, ply

pu, e gg e e o eeyoe e o.

wle hg-to peely e o e epe oe eoe, e e ooly eeg

o le o ll o el y ozg o ee o , ee eee, ou oue

po. i oe, eve lee oe 50 pee o oe euy vo o

ee e o e , o oe o p eoeo. oy-ee pee oe o e

oe ply o eple. tey o ey epe ee. we lo e lee

e e ell eqppe o e o po o o poolo o e e eeely oe

o oe e oe.

Our bEauTy ExpErTs havE OvEr 5 mILLIOnFIvE-mInuTE FaCE-TO-FaCE InTEraCTIOns

wITh COnsumErs EaCh day.

high-touch

riGht: bo bo o ge ne Yo o wee.


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ig le ee o e ol p oel, plly poe e epe oe

el no ae, e ue kgo Jp, o ly pee o ll oe,

o o pe oe e o e oel ee and le. te Ee Lecope oe o elgg o oe y eleg oe-o--, hg-to epeee.

o eple, e o oe oe e e ey e o gee le e o,

ly peol le. to ee ee e ee, e eole o hg-to ee oel o ppo

o oe ee o lge eele, o e o e ele. wog loely

oe o o lge el, no ae epe oe, clqe ee ope pe

bloogle fgp oe ne Yo cy o oe ee yo le . a l ge o e

ol ey oe ee oppe e oly e y ol, e clqe oe lo leoe eple e oe epe oe ee e, e ope o

o--yoel e ly, o oe ply e po, epe. t oep o

ueul e expe o ope oe 60 l oo ye ole.

26

riGht: clqe oe bloogle 59 see, ne Yo cy.


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i o o oeg e, epee ee o oe p o e -oe epeee, e e

oe o lg e olege o -oe ol, ey o, ep yl,eegg oe o poe go g e ee o elg oppe. we lo e

oe eeely og po peoe l eelopg e coe relop

mgee loyly pog.

28

More than hal o the astest growing and best salons

in the U.S. are Aveda salons.

tOP LEt: ae ply o coopo bolog, ily.tOP riGht: ae syl.

middLE: ae cool oe hol hpy.bOttOm LEt: m.a.c me-p a, hog kog.

bOttOm riGht: Ee Le bey ao oe, c.


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i l 2010, e eg plog e hg-to ee o el o gog poe,

lg ey pely oe, ee e ee qe oe ply. we oe ee o

eeg oe ee -l Og y, o-ee ope m .a.c

e te sqe oe, e lge. te oe e oe 60 l-ll ep

o ogee pe e ee lguge gg eup y o e level o ely

eee o e ey o oe.

31

The M.A.C reestanding store in Times Square, New York Citydraws our times the average consumer trac per day

versus other M.A.C reestanding stores.

LEt: m.a.c Eo 2 olleo.tOP: m.a.c eeg oe te sqe, ne Yo cy.


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we e lo pg eg e hg-to oel el pop-p oe. we L

see se o me oe e go pop-p oe e e o ne Yo cy, o

le oe ee e o eel oole egge og oe pe eg

eg. cee e po , e oe oee oe-o-oe epe olo

lze -el lyze o epze po peolzo. i ol, ppoely 1,500

people e e pop-p oe oe ee y.

32

tOP: L see se o me pop-p oe eeo, ne Yo cy.


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33

The Lab Series Skincare or Men pop-up store included

internet stations, skin analyzers, complimentary shaves,

mini acials and shoe shining.

tOP: L see se o me pop-p oe eo, ne Yo cy.


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i l 2010, te Ee Le cope ee 62 pee o le o oe e ue se. i

o ee y o o gge oppoe le o. te gge oppoy c, ee

e elee e ye e e o pege ey po ol e g eue se. a e ol eoe egly glol, e elee po o o o

efe .

i oe o eep pe glol e eelope, e e og o e el-efee,

eqlly e o eoo e e e o olo e. we elze e l o

loge eog o ly eelop e ge oppoe eegg e epee. J ee

eqe o po olo, o, oo, o le, , epeo eo

o ey eqe pelze po, eo, hg-to ee, oe eggee oo. teeoe, e eelop o e ole, e e ee leg leg,

ozg log o glol oeg o e e oe lolly ele.

34

localrelevancy

TO dEvELOp Our busInEss wOrLdwIdE,

wE havE bEEn LIsTEnInG TO and LEarnInG

FrOm COnsumErs In aLL OF Our markETs.

riGht: m.a.c me-p a, e mle E.


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People e ee eeyee ee opleo, ee , ee ee oe

eg glol o e og e e g eey oy. i , eg e glol lee

pege ey e g ele e e epeee, po ee o oe ll p o e ol. to ee e oe o ee e oe, e e pozg lol elee

ey eg e o ll o o po.

tog lol, -oy ee, e lee , o o e ee o o oe oe e

ego, cee oe e o oee e ppee o y, ll . i epoe o o

cee oe ee, e eelope le e po e e Ee Le no

le le o po pooe o e poe o e poege, olly o c o

pyg popee o pog e ee o ely loog e. ueg

eg o oe pepee elpe no oe o le ee e

a/P o e Ee Le .

37

In China, research showed that the most important

product attribute to the Origins consumer was getting

a product that is high-perormance and also made

with natural ingredients.

LEt: Og sg Oe, Yoop a Pee wol.


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moe ee, ey oeo e egly g ple glly. Oe e p ee ye,

ege oly e u.s. o ey-ele ee oppe 60 llo ge 94 pee. te

gl pe oe e pee oppoy o lg g e eool oeo

e o o po ee. wle hg-to ly e leg loely o o

oe, e gl pe poe el-e g e ly o egge loge

o o oe o oe, ey e ppeg. a te Ee Le cope, e o

oe o e e lee glol pege ey, e eep pe o glly y

oe, eg e ee o e ely eelyegge o .

L ye, epe e eeo, e-oee le o o copy po ge y 23 pee,

y o o lg opeee ol eog ole pg. O y o o

ee, o eple, e e elly ee pg o eo hg-to ee

oel o e el, elg o oe o le ep epee

g-ege l ep ool, Ee Le Le Ply meoe, ele oe

o le pplyg ep o ploe gl poogp. i o, e le -oee

(formobilephonesandPersonalDigitalAssistants)inNorthAmericaforAvedaandM .a.c, Jp

o bo bo, clqe m.a.c. se e, o 50 pee o m.a.c oell e-oee

Jp oe o e ole plo, e ue se, e ole oe

o Ee Le bo bo oe o go poe lle g o o

oe e l o.

39

LEt: ae ole e-oee e.

goingdigitalOur E-COmmErCE saLEs GrEw 23%

COmparEd TO 2009.


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toy, e ep o ll gl e, e oe o pooe o e-oee e ole. te

ee e-l o oooe.o poeeg eo o eole ol e-oee

e o e oel o -oeeee ol ee ee oee. ule pyl

eoe, oppg ole o loge oly epeee, o e egly efeg

. te e ee ey-o-e go, ly o o-o eo, poe olo e

po-ele p, pooe leg o oeo. te e le oe 5,000 ee

o oe, ege po g o 4.8 o o 5 , ope te eee

ee elop oel o e oe.

40

tOP: seeo o oooe.o.


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a e loo o e e, te Ee Le cope ll oe o oe e y o eggg

o oe e gl pe ee e epe oe o e oge go. o eoo o

P, te o e logopee, e e epoelly epe poe o ole ple

ll oe o e gl ol e.

41

tOP: Lirt! coe L irtiGl te pge.


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i o ll ye o pleeg o eg pl, e e e ge e o ego

egeg o ple, eog oe ee ele. we oe o o ego

a/P, Eope, e mle E & a e aeo eoe ee lge o eeo ly o o ogee ly. tog ee epe le, o ego e e e

o o ee elee y leg o gg e lol e, o ggege e e

pe ee eo, o eelop ple ele, o-eee e, ee

ee ll e ele e.

w o lge ego, e ae, e eg oppoy o ege o peee e

epe oe el. we ee e e ll e no ae le oe

o ele o o ee e leege olege g, plly o e el

eple. oely ge ely y lple b Pee, o no ae le,

oe e ue se, c Peo ro, elp ee plo, poe e elo,

o e e, poe gle, ggege po o o o el pe. w no

ae epeeg ppoely 42 pee o o le, e le ele ll o o

o ly e e oppoe llege e, plly e oe o ellg

o.

43

integration &building

capabilitieswE arE bECOmInG mOrE EFFICIEnTand sTrEamLInEd.


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WWW.TOMFOR

WWW.TOMFORD.COM


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Tohelpdrivedowncostsandimproveintegration,ourCompanycreatedaProgramManagementTeam(PMT)

pove e uue poee eee o plee ue o pog eule

ee efee vg. i , ue e uell o e Pmt, e eve ove $350 llo

g l 2010. we e l, zele eo o eoe og eg

o ogzo, eg e o o goo leegg le o geogpe. we

epoee o pply e o o olloely o e, jog oe o

eoe e le o g oe po o e oe ee e. we ee

e e o sku y e pee, elg o ee leege o e le gg o e

ee eoy.

to poe e plg, eoy gee, eo g, pee o e g o

goods,weadvancedourStrategicModernizationInitiative(SMI)byimplementingSAP,anenterprise-wide

oo ye, e o o no ae g e. we oe o g po

olege, e ll pply o o e pe e oll o smi lple le e ego.

to e, e e elly oe oe 80 pee o o -oe poo oo saP.

we e lo oe o eelop o sle, ieoy Opeo Plg pog e

poe oe le e opeo ple e o o yel pl ee ee

o oe oe.

a e e e, e ee ply gp o ogzo ee lle

oe e. we eee poo o o g egeg o eg ple og

o e-lg e le eleo eg. a el, e elee e e ee eqppe o

eogze plze o e gee oppoe o eey e.

45

Tom Ford Grey Vetiver was the 2010 FiFi Award winner

in the Mens Luxe category.

LEt: to o Gey vee ge pg.


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Oe e e e ye, ely l o e ey y e go eegg e

epee o oe o r c. a e poze go e, e ll oe o ple

pl o o ee o e. i r loe, e clqe Ee Le epee

ely 60 pee o e e e o oe. i eegg e le , e ll oe

o e e eg qe oe ee ppog o po le

ege eg leegg e poe o o hg-to ee.

i c, ee e epee o- o e ey e, e epeee ele go

l 2010, gog o le ee y ely 30 pee. to o oe, e e o

oe o eploy oe o ou o ueul ege e pleee o uppo e lu o

Ee Lue upge ave ng rep 360-egee elevo, p gl e pg.

46

emergingmarkets &alternativechannels

tOP: Ee Le ds Glle w, h.bOttOm: se dy co o hoe soppg neo poog ge olleo.


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47


50/162

The unveiling o Cliniques rst fagship store in So Paulo,

Brazil provides a strategic opportunity or the brand to

expand in the third-largest beauty market in the world.


51/162

we e eee o oe g c y eg eoe o oge el ee

ely, epe oe pely oe, sepo. i spg 2010, e opee e

Og oe l c, Po epe oe. Og o c

l el e eeee epeo.

i ru, e oue o ou o e, u Ee Lue ave ng rep, clque

3-sep s ce sye dknY be delo ge. tog e e o gee eg

e e eg, e l gee ee o gog e. tog e ppo

o ege elevo, gl ouoo pg, ee e ve expeee ge ue

ee, eg poel lo ee o e o e .

i o o og o g c r, e e eg oppoe oe eegg

e bzl i ell oe eelope e, eyg plzg o o

ol e el o o. bee eey e qe, e lo o o o

ee e ee o o oe og peolze epeee el oe e e

pege oppoy. o eple, le e o o lg eee g no

ae epe oe, e ll oe o eelop oppoe peee Eope, el

el o e ol eeg oe L ae. i e ue se, e e epog o

e pege oe ee eg o peee lee el e ol

log-e poe, lg pely ey , ole, e epoe tv, lo p.

49

For scal 2010, Ojons QVC retail sales

in the U.S. totaled over $35 million.

tOP LEt: Ojo reoe h tee.tOP riGht: de so, oe o Ojo.bOttOm LEt: clqe eeg oe so Plo, bzl.bOttOm riGht: Og l ee c.


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aley, e e e eeo poge e g o el el e. wole,te Ee Le cope e oe pege e e o ep e

el. o o e l c, e epe o ee pple ee poely pg le

el el, plly a/P, oe ego, oe oe cee ze el

op o. wle ee ge oppoy e el el el, e o eogze ee e

eo eel llege eyo o ool, olo epo, el o peee epe

e ly o llge o oe o el. we e oly og o pe e

ee .

bOttOm: Jo mloe eeg oe, Loo.


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51

In European pharmacies, Darphin is implementing

breakthrough store navigation and merchandising

systems to attract consumers, as well as educate them

on how to use Darphins product line.

bOttOm: dp ply e py, P.


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53

Oe o o py eg gol ee o o ge-g po egoe gee

glol go poel. wle e e e e o ey eg poy, o ep egoy o-

e o e po go e. O o leg ep , m.a.c bo bo,

e ejoyg o go eolly. te opeg o 79 m.a.c oo oe o no ae

elpe el ee o e bo bo l Pol eogg o e

ge o e oppoe Ee Eope.

we e goo poge pog poly o ge egoy. a dege ge

oe o ee, oe poel le le eg o. to o o ege , Ee

Lue clque, ll oue o ee e, exg ge o elg llue oue o e

. togee, o e ee o e op e oe ge u.s. pege epe

oe. Ee Le bel ge, oe 25 ye go, e e o o

l ye. O g-e ge , lg Jo mloe to o, e lle, eoe

gog ollog. to o ope e e e op ey

ho selge Loo.

strengtheningourcategories

tOP LEt: m.a.c Eo 2 olleo.tOP riGht: Goo ree L v c Poe bgeg ce.bOttOm: toy hlge oy oy gl pg.


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54


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55

As one o the biggest product launches in

Bumble and bumbles history, its Wear and Care line

reinvents the essence o the brands styling heritage

to meet the aspirations o consumers.

In collaboration with British liestyle paint and wallpaper

purveyor Farrow & Ball, Jo Malone launched its rst-ever

collection o colored candles, bringing to lie the concept o

Decorating with Scent and Colour.

i e, e e ee og o ae ble le o e op e o pege

e, ppog e eo o lo o ey poe og hg-to epeee

e eoe ee eqy. we elee ee ll oo o go no ae

o o ee oe oppoe eolly.

LEt: Jo mloe o & bll cle olleo.tOP: ble le we ce le.


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aoe ey elee o o egy l 2010 o e o epeog . Ou

ge vo e goo poge povg pofly. o Pepve, ee e ful,

u eey, eo o oue e olele uo o e ole. ue e -

e, e e po o y e eee o pl flely. we ppoe e ele og e

o-o o pe oe o e Pepe po, e ol o e y

o oe . ug ol gl e, e eeely e oey Pepe

loyl oe ele oe o ell e op-ellg po ole o o. we lo

ee y o e lee eployee y eg e o oe le gly g-

g e o o e o.

56

optimizing

ourportfolioThE EsT{E LaudEr COmpanIEs makEs 1.2 bILLIOn

prOduCTs EvEry yEar.

riGht: to o Pe ble Lp colo colleo.


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57


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58


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a e glol poel eple oue o exp, e e ofe te Ee Lue cope

ll oue o e e oeo e g pou hg-tou eve expeee o oe

e. we ol e o o le e eee o oe o g e e o eeyoe e o

e e e eeyg e o. Loog e, e elee e copy ell pooe.

we e ey-e, oe-pe opy e pl o ee e gog e o

o pege ey epeee y gg oe o oe oe, opeg oe oo,

eplog e le eologe elgg oe ole epee po

peeee ee.

59

OUTLOOK

brInGInG ThE bEsT TO EvEryOnE wE TOuCh,

and bEInG ThE bEsT In EvEryThInG wE dO.

LEt: m.a.c me-p a coe mly me olleo.


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60

we ll oe o eole o hg-to ee, po eley oele eeg epege epeee. we ll oe o ele e o ll o o oe. we ll e ey

eepe oe olege g, g o e o e eg.

we ll le o e oe, olloe e olege oe o le pege ey ll o

e. we ll oe o e lolly ele o e ol og ee oe gop.

tog oe ege, y eg g o o ee oe o e gloe, e ll

oe o pe o o, l o o le ee, e ell ooo loe.

o o eo, e loo o e o eleg peo go, gee e o ee pl ee, le poly. a te Ee Le cope, e e ee o eg o

egy o e o o o le golo e e pe lee glol pege ey

e loo o o e e pe o o eg joey.


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61

leading inglobal

prestigebeauty


64/16266

United StateSBumbl bumbl op h rs-vr

hr sylg so o o hmos ful sho buy rl

locos h worl Bloomgls

59h Sr. th Bb.SylgBr Shop

pus h cr o hrrssg ro

cr wh shopprs, kg hr

mrchsg cosumr

ggm mol o w hghs.

eUROPeGooSk Lbs s h umbr

o -gg sk cr l Grmys dougls prumrs.

i collboro wh Brsh

lsyl p wllppr

purvyor Frrow & Bll,

Jo Mlo luch

s rs-vr collco o

color cls.

GLOBALSUCCESSES

BRaZiLClqu uvl s rs fgshp sor

So Pulo, Brzl, lvrg srvc s

you lk o Souh amrc.


65/16267

JaPanav clbr h opg o s

50h Jps av Cocp Slo

Bobb Brow op s tokyo fg

sor h Omoso sho r

M.a.Cs rs ory o rlwy so

Jp ws wh h succssul

opg o s rsg sor

Shjuku, h worls buss

r so.

HOnG KOnGi Hog Kog, Bobb Brow s

#2 ol prsg mkup.

RUSSiadrph clbr h luch o

Hyrsk essl, brkhrough

w mosurzr p wh

Hyr-Srucur chology.

CHinaes Lur bcm h #1 br

prsg buy Ch our

srbuo.

MiddLe eaStL Mr oclly clbr h

rrvl o h br Bhr, hsxh coury h Ml es

whr L Mr s sol.

apg o h culurl cusoms o

Su arb, our M.a.C Mk-up

arss (who r ll ml) ulz c

chrs orr o hlp prov our

ml cosumrs wh h vc

proucs hy r lookg or.

SOUtH aFRiCath arms dsgr

Frgrcs m Souh arc

dKnY dlcous ar prr

wh h Vlu Czs ivo hlp rs us or youg

ul mpowrm progrms

h ch sl-vlopm,

czshp prcpls

cosuol vlus.


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Est{E LaudEr

Ee Le le 1946 e e fgp o te Ee Le cope i.

Ee Le po e ol oe 150 oe eoe. tey e eologlly

e, g-peoe po epo o oo, opo peo qly.

Ee Le poe oe o e o o e ep po, ae

ng rep syoze reoey cople, re-n ule L age-coeg cee Pe

colo, o o e op 10 ge u.s. pege epe oe, bel pleasures.

aramis

ioe 1964, a e pege e ge o e ol epe oe. i ol

oe 80 oe eoe ole. a poeee pege e goog

e pl oe 20 qe po. toy, e el og og

ey oe yol o l ly opo.

PORTFOLIO OFBRANDS


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cLiniQuE

clqe oe 1968 e eolog-ee, pege oe . sol oe

135 oe eoe, clqe o oy e o e egg

o poe e ge qly o eee po o ee eey ype oe.

te oze ppo qly po, ll eloly ee elly ole

e le ee, e e clqe oe o e leg e oe e ol.

PrEscriPtivEs

Pepe oe 1979 eg o olo o oe. i e qe o l 2010,

e loe e glol olele o o e . sele Pepe ep e

po e lle o le pepe.o.

Lab sEriEs skincarE Or mEn

L see se o me oe y a 1987. i ol oe 35 oe

eoe ole. te e o e, eee e pel e oe

eology, e gee e le ee o e pyologl leyle ee o

evelop pou pove eul peflly ge e e oe o oe e.

OriGinsOg oe 1990 e epe oe elle . sol oe 20

oe eoe, Og po e o e e l-ely e e

g oo o eele eoe, eegy e-ely pe. te o

Og o ee g-peoe l e po e Poee y ne. Poe y

see. Og po e poe pl, og gee 100 pee l eel ol,

e oe o poog pge eylg e pole.


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tOmmY hiLiGEr

toy hlge joe te Ee Le cope ly o e e ele glol lee

geee ge 1993. sol oe 120 oe eoe, toy hlge poe

ge oy po efe e l ae ool o ege toy hlge.

m.a.c cOsmEtics

m.a.C(Make-upArtCosmetics),aleadingbrandofprofessionalcosmetics,wasrstcreatedin1984in

tooo, c eoe jog te Ee Le cope ly o e 1990. te

poply go og o o o-o-o eoee o ep , oel,

poogpe jol o e ol. m.a.c o all age, all re, all see. te

ol oe 70 oe ole.

kitOn

ko, pego il log opy oe e o o e il log

eeee o ly elege, joe e e ele glol ge lee geee

ge 1995. sol oe 10 oe eoe, ko gue e eoe e vey

eee o o, elege ope uly.

La mErL me joe o ly o 1995 e e qe e g o ce e l me. sol

60 oe eoe, L me epee pee ly eo e ee. te

legey po, ce e l me, oe o e oe o e o oe oee oze.

se ogl oepo y d. m he, eope py, e o e-ellg ce e l

me epe o oplee ge o e oe o pe eoe ollog.


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bObbi brOwn

bo bo qe 1995. te ol ole ele ele 55 oe

eoe. a ele ey le eelope y elee ep bo bo, e

oe o ee eg oe o e e o ep . t poeol le le

olo oe, e, poeol ep e ool, eoe ge.

dOnna karan

do k ne Yo dknY joe te Ee Le cope e e ele glol lee

geee ge 1997. sol oe 120 oe eoe, e olleo o o

ly ge, oy olleo efe e qly, yle oo ee

ege do k.

avEda

we qe ae 1997 ely ol 30 oe eoe o e ol. ae

poe pe poeol oe e, ylg, e, oy e, p, o, ep

leyle po, ell poeol olo. te le o g-peog ol pou

ulfll e o o evoel ouy leep epoly.

JO maLOnEJo mloe qe 1999 lle oy oe 20 oe eoe. te

b leyle o o qe ge poolo ly po o e , oy

oe. reg e le o peey y g epee oo o gee pog

eleg ye plyl oep ee e e o, e ol o Jo mloe oe o pe

loyl ollog.


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bumbLE and bumbLE

we qe o l ee ble le 2000 e lly ege

sepee 2006. i ol 25 oe eoe. te ne Yo-e e eo

ee g-qly e ylg po e og oe op-e lo ele

pege ele. Po e lo yl ee o ge o o, poo oo

tv l e.

michaEL kOrs

mel ko joe e e ele glol lee geee ge e e ee

qe 2003. w po e ol oe 20 oe eoe, e

ge eoy e je e leyle poog o mel ko. te ege ge e, mel

ko, oe epeo o e l teoe.

darPhin

te Ee Le cope qe dp 2003. te ol 50 oe eoe

ole. i 1958, oe Pee dp eelope opeee e pog ee o

eg oe ee o ell-eg, e e e ee o oe. sll oy, dp

po e ee o e e pl e, ol o le oe eology

e ply ol epee Eope pe, ey lo p ole.

amErican bEautY

we ee ae beuy 2004 luxuou oe, e ge elee

e ppole ey o ae yle. i lle elely e ue se kol

depe soe ole ol.o.


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Lirt!

Lirt! ele 2004 lle elely e ue se kol depe soe

ole ol.o. Lirt!, e, , fy ep olleo, eeyg yo ee o ge oe.

Plyl oe olo olo-e pgg ee oppg elgl e

po eele.

GOOdskin Labs

Goos L, oe 2007, gee, -gg e ele le, e-

le el o ly log e. s po le t-ale i deep wle lle

Eylple-2 Eye L + cle ree, e eelle boo uk dogl Gey. Goos L

ol oe 58 oe ole elely e ue se kol depe

soe ole ol.o.

GrassrOOts rEsEarch Labs

Goo ree L oe 2008 lle elely e ue se kol

depe soe ole ol.o, ell ele oue ole. Goo ree L

uly eol e expeee oe e poel gee e ee

o ele eoy el.

sEan JOhn

te ele glol lee geee o se Jo ge 2005 ol oe 35

oe eoe. we oe 2006, se Jo ge ge, uogle, qly

ee no.1 ue se epe oe. se e, se Jo ge e go o le

uogle wo i a kg ll o pe e eee o opo elege.


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73/162

cOach

co, i., leg o oe l ae eoe, joe te Ee Le cope

ly o 2006. te olleo o ge lly ey po eoe e elely

ae yle. te olleo lle co el oe e ue se Jp, ele

epe oe e ue se ole.

OJOn

we qe Ojo 2007. i ol e oe epg eolly. te ee

gly eee e po g ol geo gee o e ol oe.

te e, lly ee elee e -ee o ee py poey. sly

peeg e l l eoe o geo oe o e ol e e e o

e o.

smashbOx

i Jly 2010, te Ee Le cope oplee e qo o so bey coe,

pely el, poo o-pe pege oe opy e Lo agele, clo.

so ele el gly el pege oe op peoe

pely ey el. wle e joy o so le e no ae, e

e oe 40 oe ole.


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72

abriZiO rEdaPee ce Eee Oete Ee Le cope i.

irvinE O. hOckadaY, Jr.1

ree Pee ce Eee Oe

hll c, i.

rOsE mariE bravO, cbE2,4

rel megcol

mELLOdY hObsOn1

Peeael iee, LLc

PauL J. ribOurG1,2,4

cce Eee Oe

coel G copy

charLEnE barshEskY3

seo ieol Pe

wlehle

aErin LaudErseo ve Pee

cee deoEe Le

BOARD OFDIRECTORS


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73

richard . ZanninO1

mgg deoccmP cpl ao, LLc

barrY s. stErnLicht2,4

cce Eee Oe

soo cpl Gop

LYnn OrEstEr dE rOthschiLd3

ce EeeEL rol LLc

richard d. ParsOns2,3

ccgop, i.

wiLLiam P. LaudEr3

Eee cte Ee Le cope i.

LEOnard a. LaudErc Ee

te Ee Le cope i.

JanE LaudErGlol PeeGeel mge

Og Ojo

1. mee o a coee2. mee o copeo coee3. mee o nog bo a coee4. mee o so Pl soee


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JOhn dEmsEYGop Pee

amY diGEsOEee ve PeeGlol h reoe

abriZiO rEdaPee ce Eee Oe

harvEY GEdEOnEee ve PeeGlol ree deelopecopoe Po iooPge deelope

richard w. kunEsEee ve Peece l Oe

EvELYn h. LaudErseo copoe ve Pee

LEOnard a. LaudErc Ee

rOnaLd s. LaudErcclqe Looe, LLc

wiLLiam P. LaudErEee c

sara E. mOssEee ve PeeGeel coel

GrEGOrY . POLcErEee ve Pee

Glol spply c

cEdric PrOuvGop Peeieol

aLExandra c. trOwErEee ve PeeGlol coo

74

EXECUTIVEOFFICERS


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75

FINANCIALHIGHLIGHTS

FINANCIAL OVERVIEWiscaL YEar EndEd Or at JunE 30 2010 2009 cge

(Dollarsinmillions,exceptpersharedata)

ne sle* $7,795.8 $7,323.8 6%Opeg ioe* 789.9 418.4 89%ne Eg* 478.3 218.4 100+%ne Eg Pe coo se dle* 2.38 1.10 100+%tol ae* 5,335.6 5,176.6 3%soole Eqy* 1,948.4 1,640.0 19%

GLOBAL NET SALES

51%intErnatiOnaL

$3.32 BILLION

49%u.s.

$3.14 BILLION

62%intErnatiOnaL$4.81 BILLION 38%u.s.$2.99 BILLION

2006$6.46 llo

2010

$7.80 llo

* ree o selee l d ele oooe o pge 81.

ale o te Ee Le cope i.


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76

NET SALES*(doll i illio)

OPERATINGINCOME*(doll i illio)

$7.80BILLION

$789.9MILLION

2010

$7.8 billion

1991

$2 billion

1985

$1 billion

1972

$100 million

1953

HISTORICALNET SALES GROWTH

6.46 7.04 7.91 7.32 7.80

2006 2007 2008 2009 2010

619.6 749.9 810.7 418.4 789.9

2006 2007 2008 2009 2010


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77

NET EARNINGSFROM CONTINUINGOPERATIONS*(doll i illio)

DILUTED NETEARNINGS PER SHAREFROM CONTINUINGOPERATIONS*

OPERATINGWORKINGCAPITALACCOUNTS RECEIVABLEPLUS INVENTORY LESS

ACCOUNTS PAYABLE(a % o et le)

$478.3MILLION

$2.38

14.7%

324.5 448.7 473.8 218.4 478.3

$1.49 $2.16 $2.40 $1.10 $2.38

19.7 19.9 21.0 18.0 14.7

2006 2007 2008 2009 20102006 2007 2008 2009 2010

2006 2007 2008 2009 2010

2006 2007 2008 2009 2010

* ree o selee l d ele oooe o pge 81.

ale o te Ee Le cope i.

doe o epee ee o e copy opeg el ee e u.s. geelly epe og pple.


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78

2010 NET SALESBY DISTRIBUTIONCHANNEL

doe o epee ee o e copy opeg el ee e u.s. geelly epe og pple.

$686.1MILLION

FREE CASH FLOWNET CASH FLOW FROMCONTINUING OPERATIONSLESS CAPITAL EXPENDITURES(doll i illio)

COMPOUND ANNUALGROWTH RATE 10.1%

466.7 355.2 332.3 416.2 686.1

2006 2007 2008 2009 2010

Other 9%

Salons/Spas 5%

Travel Retail 9% 9% Retail Stores

1 3% Perfumeries

28% InternationalDepartment Stores

U.S. Department Stores 27%


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FINANCIALSECTION

79


82/16280 THE EST{E LAUDER COMPANIES INC.

81 SELECTED FINANCIAL DATA

82 MANAgEMENTS DISCUSSION ANDANALySIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

108 CONSOLIDATED STATEMENTS

OF EARNINgS

109 CONSOLIDATED BALANCE SHEETS


OF EQUITy

111 CONSOLIDATED STATEMENTS OF

COMPREHENSIVE INCOME (LOSS)


OF CASH FLOWS

113 NOTES TO CONSOLIDATED

FINANCIAL STATEMENTS

151 MANAgEMENTS REPORT ON

INTERNAL CONTROL OVERFINANCIAL REPORTINg

152 REPORT OF INDEPENDENT

REgISTERED PUBLIC ACCOUNTINg

FIRM ON INTERNAL CONTROL

OVER FINANCIAL REPORTINg

153 REPORT OF INDEPENDENT REgISTERED

PUBLIC ACCOUNTINg FIRM

154 STOCkHOLDER INFORMATION

CONTENTS


83/162THE EST{E LAUDER COMPANIES INC. 81

The table below summaries selected nancial inormation. For urther inormation, reer to the audited consolidated

nancial statements and the notes thereto beinnin on pae 108 o this report.

yEAR ENDED OR AT JUNE 30 2010(a) 2009(a) 2008 2007 2006(b)

(In millions, ecept per share data)

STATEMENT OF EARNINgS DATA:Net sales $7,795.8 $7,323.8 $7,910.8 $7,037.5 $6,463.8gross prot 5,966.4 5,442.2 5,914.0 5,262.7 4,777.2Operatin income 789.9 418.4 810.7 749.9 619.6

Interest epense, net(c) 74.3 75.7 66.8 38.9 23.8Interest epense on debt etinuishment (d) 27.3 Earnins beore income taxes and discontinued operations 688.3 342.7 743.9 711.0 595.8Provision or income taes 205.9 115.9 259.9 255.2 259.7Net earnins rom continuin operations 482.4 226.8 484.0 455.8 336.1Discontinued operations, net o ta(e) 0.5 (80.3)Net earnins attributable to noncontrollin interests (4.1) (8.4) (10.2) (7.1) (11.6)Net earnins attributable to The Este Lauder

Companies Inc. 478.3 218.4 473.8 449.2 244.2

CASH FLOW DATA:Net cash fows provided b operatin activities $ 956.7 $ 696.0 $ 690.1 $ 661.6 $ 709.8Net cash fows used or investin activities (281.4) (339.5) (478.5) (373.8) (303.2)Net cash fows provided b (used or) nancin activities (406.1) 125.8 (78.1) (411.6) (594.6)

PER SHARE DATA:Net earnins per common share rom

continuin operations(e):Basic $ 2.44 $ 1.16 $ 2.50 $ 2.23 $ 1.56Diluted $ 2.40 $ 1.15 $ 2.46 $ 2.19 $ 1.55

Net earnins attributable to The Este LauderCompanies Inc. per common share:

Basic $ 2.42 $ 1.11 $ 2.44 $ 2.20 $ 1.14Diluted $ 2.38 $ 1.10 $ 2.40 $ 2.16 $ 1.12

Weihted averae common shares outstandin():Basic 197.7 196.3 193.9 204.3 215.0Diluted 200.7 197.7 197.1 207.8 217.4

Cash dividends declared per common share $ .55 $ .55 $ .55 $ .50 $ .40

BALANCE SHEET DATA:Worin capital $1,548.8 $1,453.3 $1,088.0 $ 738.7 $ 738.7Total assets 5,335.6 5,176.6 5,011.2 4,125.7 3,784.1Total debt(c)(d) 1,228.4 1,421.4 1,196.9 1,088.5 521.5Stocholders equitThe Este Lauder Companies Inc.() 1,948.4 1,640.0 1,653.2 1,199.0 1,622.3

2010(a)

$7,795.85,966.4

789.9

4.327.3

688.3

205.9

482.4

(4.1)

4 8.3

$ 956.7(281.4)

(406.1)

$ 2.44

$ 2.40

$ 2.42

$ 2.38

197.7

200.7

$ .55

$1,548.85,335.6

1,228.4

1,948.4

(a) Fiscal 2010 results included $55.9 million, ater tax, or $.28 per diluted share related to total chares associated with restructurin activities. Fiscal 2009 results included$61.7 million, ater ta, or $.31 per diluted share related to total chares associated with restructurin activities.

(b) Fiscal 2006 results included $93.0 million, ater ta, or $.43 per diluted share in special chares related to our cost savins initiative and ta-related matters. Included inthe chares was an operatin epense chare o $92.1 million, equal to $.27 per diluted common share related to the cost savins initiative. The results also included aspecial ta chare related to a settlement with the Internal Revenue Service reardin an eamination o our consolidated Federal income ta returns or scal ears 1998throuh 2001, and represents the areate earnins impact o the settlement throuh scal 2006. The settlement resulted in an increase to our scal 2006 income taprovision and a correspondin decrease in scal 2006 net earnins o approimatel $46 million, or approimatel $.21 per diluted common share. Durin the ourthquarter o scal 2006, we completed the repatriation o orein earnins throuh intercompan dividends under the provisions o the American Jobs Creation Act o 2004

(the AJCA). In connection with the repatriation, we updated the computation o the related areate ta impact, resultin in a avorable adjustment o approimatel$11 million, or approimatel $.05 per diluted common share, to our initial ta chare o $35 million recorded in scal 2005. The ta settlement, coupled with the AJCAavorable ta adjustment, resulted in a net increase to our scal 2006 income ta provision and a correspondin decrease in scal 2006 net earnins o approimatel$35 million, or approimatel $.16 per diluted common share.

(c) In November 2008, we issued and sold $300.0 million o 7.75% Senior Notes due November 1, 2013 in a public oerin. We used the net proceeds o this oerin torepa then-outstandin commercial paper balances upon their maturit. In Ma 2007, we issued and sold $300.0 million o 5.55% Senior Notes due Ma 15, 2017 and$300.0 million o 6.00% Senior Notes due Ma 15, 2037 in a public oerin. We used the net proceeds o this oerin to repa lon-term commercial paper, which wasused to und our accelerated stoc repurchase proram, and to pa transaction ees and epenses related to this oerin.

(d) On Ma 24, 2010, we completed a cash tender oer or $130.0 million principal amount o our 2012 Senior Notes at a price o 108.500% o the principal amount andor $69.9 million pr incipal amount o our 2013 Senior Notes at a tender pr ice o 118.813% o the principal amount. Durin the ourth quar ter o scal 2010, we recorded apre-ta epense on the etinuishment o debt o $27.3 million representin the tender premium, the pro-rata write-o o unamortied terminated interest rate swap,issuance costs and debt discount, and tender oer costs associated with both series o notes.

(e) In April 2006, we completed the sale o certain assets and operations o the reportin unit that mareted and sold Stila brand products. As a result, all consolidatedstatements o earnins inormation or all periods presented have been restated or comparative purposes to refect those reportin units as discontinued operations.

() Durin scal 2007, we repurchased 22,461,642 shares o our outstandin common stoc, o which 15,960,842 shares were purchased or $750.0 million throuh anaccelerated stoc repurchase proram with a nancial counterpar t.

SELECTED FINANCIAL DATA



CRITICAL ACCOUNTING POLICIES

AND ESTIMATES

The discussion and analsis o our nancial condition at

June 30, 2010 and our results o operations or the threescal ears ended June 30, 2010 are based upon our con-

solidated nancial statements, which have been prepared

in conormit with U.S. enerall accepted accountin

principles. The preparation o these nancial statements

requires us to mae estimates and assumptions that aect

the amounts o assets, liabilities, revenues and expenses

reported in those nancial statements. These estimates

and assumptions can be subjective and complex and,

consequentl, actual results could dier rom those

estimates. Our most critical accountin policies relate torevenue reconition, inventor, pension and other post-

retirement benet costs, oodwill, other intanible assetsand lon-lived assets, income taes and derivatives.

Manaement o the Compan has discussed the selec-

tion o sinicant accountin policies and the eect oestimates with the Audit Committee o the Compans

Board o Directors.

REVENUE RECOgNITIONRevenues rom merchandise sales are reconied upon

transer o ownership, includin passae o title to the cus-

tomer and transer o the ris o loss related to those

oods. In the Americas reion, sales are enerall reco-nied at the time the product is shipped to the customerand in the Europe, Middle East & Arica and Asia/Pacicreions sales are enerall reconied based upon the

customers receipt. In certain circumstances, transer o

title taes place at the point o sale, or example, at our

retail stores. Sales at our retail stores and online are reco-

nied in accordance with a traditional 4-4-5 retail calen-

dar, where each scal quarter is comprised o two 4-wee

periods and one 5-wee period, with one extra wee in

one quarter ever seven ears. As a result, the retail

quarter-end and the scal quarter-end ma be dierent b

up to si das.Revenues are reported on a net sales basis, which is

computed b deductin rom ross sales the amount o

actual product returns received, discounts, incentive

arranements with retailers and an amount established or

anticipated product returns. Our practice is to accept

product returns rom retailers onl i properl requested,authoried and approved. In acceptin returns, we tpi-

call provide a credit to the retailer aainst accounts

receivable rom that retailer. As a percentae o ross

sales, returns were 4.3%, 4.4% and 4.4% in scal 2010,

2009 and 2008, respectivel.Our sales return accrual is a subjective critical estimate

that has a direct impact on reported net sales. This accrual

is calculated based on a histor o actual returns, esti-

mated uture returns and inormation provided b retailers

reardin their inventor levels. Consideration o these

actors results in an accrual or anticipated sales returns

that refects increases or decreases related to seasonal

fuctuations. Experience has shown a relationship between

retailer inventor levels and sales returns in the subse-

quent period, as well as a consistent pattern o returns

due to the seasonal nature o our business. In addition, as

necessar, specic accruals ma be established or sini-

cant uture nown or anticipated events. The tpes o

nown or anticipated events that we have considered, and

will continue to consider, include, but are not limited to,

the nancial condition o our customers, store closins b

retailers, chanes in the retail environment and our deci-sion to continue or support new and eistin products.

In the ordinar course o business, we have established

an allowance or doubtul accounts and customer deduc-

tions based upon the evaluation o accounts receivableain, specic exposures and historical trends. Our allow-

ance or doubtul accounts and customer deductions is asubjective critical estimate that has a direct impact on

reported net earnins. The allowance or doubtul

accounts was $34.3 million and $41.4 million as o

June 30, 2010 and 2009, respectivel. The allowance ordoubtul accounts was reduced b $15.8 million, $14.1

million and $10.2 million or customer deductions and

write-os in scal 2010, 2009 and 2008, respectivel,

and increased b $8.7 million, $29.2 million and $13.2

million or additional provisions in scal 2010, 2009 and2008, respectivel.

INVENTORyWe state our inventor at the lower o cost or air maretvalue, with cost bein determined on the rst-in, rst-out(FIFO) method. We believe FIFO most closel matches

the fow o our products rom manuacture throuh sale.The reported net value o our inventor includes saleableproducts, promotional products, raw materials and com-ponentr and wor in process that will be sold or used inuture periods. Inventor cost includes raw materials,

direct labor and overhead, as well as inbound reiht.

Manuacturin overhead is allocated to the cost o

inventor based on the normal production capacit. Unal-

located overhead durin periods o abnormall low pro-

duction levels are reconized as cost o sales in the period

in which the are incurred.We also record an inventor obsolescence reserve,

which represents the dierence between the cost o theinventor and its estimated realiable value, based on

various product sales projections. This reserve is calcu-

lated usin an estimated obsolescence percentae applied

MANAgEMENTS DISCUSSION AND ANALySIS OFFINANCIAL CONDITION AND RESULTS OF OPERATIONS



to the inventor based on ae, historical trends and

requirements to support orecasted sales. In addition, and

as necessar, we ma establish specic reserves or uture

nown or anticipated events.

PENSION AND OTHER POST-RETIREMENTBENEFIT COSTS

We oer the ollowin benets to some or all o ouremploees: a domestic trust-based noncontributor qual-ied dened benet pension plan (U.S. Qualied Plan)and an ununded, non-qualiied domestic noncon-

tributor pension plan to provide benets in excess o

statutor limitations (collectivel with the U.S. Qualied

Plan, the Domestic Plans); a domestic contributor

dened contribution plan; international pension plans,

which var b countr, consistin o both dened benetand deined contribution pension plans; deerred

compensation arranements; and certain other post-

retirement benet plans.The amounts needed to und uture paouts under

these plans are subject to numerous assumptions and

variables. Certain sinicant variables require us to maeassumptions that are within our control such as an antici-pated discount rate, expected rate o return on plan assets

and uture compensation levels. We evaluate these

assumptions with our actuarial advisors and select

assumptions that we believe refect the economics under-

lin our pension and post-retirement obliations. Whilewe believe these assumptions are within accepted indus-

tr ranes, an increase or decrease in the assumptions oreconomic events outside our control could have a directimpact on reported net earnins.

The discount rate or each plan used or determinin

uture net periodic benet cost is based on a review o

hihl rated lon-term bonds. For scal 2010, we used adiscount rate or our Domestic Plans o 6.50% and var-in rates on our international plans o between 1.75% and

8.75%. The discount rate or our Domestic Plans is basedon a bond portolio that includes onl lon-term bonds

with an Aa ratin, or equivalent, rom a major ratin

aenc. We believe the timin and amount o cash fowsrelated to the bonds included in this portolio is epectedto match the estimated dened benet pament streamso our Domestic Plans. For iscal 2010, we used an

expected return on plan assets o 7.75% or our U.S. Qual-

ied Plan and varin rates o between 2.75% and 8.75%or our international plans. In determinin the lon-term

rate o return or a plan, we consider the historical rates

o return, the nature o the plans investments and

an expectation or the plans investment strateies,

see Note 13 Pension, Deerred Compensation and

Post-retirement Beneft Planso Notes to Consolidated

Financial Statements or details reardin the nature o

our pension and post-retirement plan investments. The

dierence between actual and expected return on plan

assets is reported as a component o accumulated othercomprehensive income. Those ains/losses that are sub-ject to amortization over uture periods will be reconized

as a component o the net periodic benet cost in suchuture periods. For scal 2010, our pension plans had

actual return on assets o approximatel $101 million as

compared with expected return on assets o approxi-

matel $52 million, which resulted in a net deerred aino approimatel $49 million, substantiall all o which iscurrentl subject to be amortied over periods ranin

rom approximatel 4 to 26 ears. The actual return on

assets was primaril related to the perormance o equitmarets durin the past scal ear.

A 25 basis-point chane in the discount rate or the

expected rate o return on plan assets would have had theollowin eect on scal 2010 pension epense:

25 Basis-Point 25 Basis-PointIncrease Decrease

(In millions)

Discount rate $(1.5) $3.3

Epected return on assets $(1.9) $1.9

Our post-retirement plans are comprised o health care

plans that could be impacted b health care cost trend

rates, which ma have a sinicant eect on the amountsreported. A one-percentae-point chane in assumed

health care cost trend rates or scal 2010 would have had

the ollowin eects:

One-Percentae- One-Percentae-Point Increase Point Decrease

(In millions)

Eect on total serviceand interest costs $1.1 $(1.0)

Eect on post-retirementbenet obliations $9.4 $(9.0)

For scal 2011, we are usin a discount rate or the

Domestic Plans o 5.30% and varin rates or our inter-national plans o between 1.25% and 8.00%. We are usin

an expected return on plan assets o 7.75% or the U.S.

Qualied Plan and varin rates or our international pen-

sion plans o between 2.50% and 8.00%. The net chanein these assumptions rom those used in scal 2010 will

result in an increase in pension epense o approimatel$11.4 million in scal 2011. We will continue to monitor

the maret conditions relative to these assumptions and

adjust them accordinl.



cash fows o each reportin unit, as well as terminal value,

and discountin such cash fows at a rate o return that

refects the relative ris o the cash fows.Under the maret approach, we utilie inormation

rom comparable publicl traded companies with similaroperatin and investment characteristics as the reportinunits, which creates valuation multiples that are applied to

the operatin perormance o the reportin unit beintested, to value the reportin unit.

The e estimates and actors used in these two

approaches include, but are not limited to, revenue

rowth rates and prot marins based on internal ore-

casts, terminal value, the weihted-averae cost o capital

used to discount uture cash fows and comparable maret

multiples. The scal 2010 compound annual rowth rateo sales or the rst our to eiht ears o our projections,as considered appropriate or the individual reportin

units, raned between 3% and 24% with the hiher

rowth rates in those reportin units that start with thesmallest base in scal 2010. The scal 2009 compound

annual rowth rate o sales or the rst eiht ears o ourprojections raned between 6% and 19% with the hiherrowth rates in those reportin units that start with the

smallest base in scal 2009. For reportin units with posi-tive earnins, rowth in the correspondin earnins

beore interest and taxes raned rom 9% to 161% in scal

2010 as compared with 6% to 46% in scal 2009. The

terminal rowth rates were projected at 3% ater our toeiht ears in scal 2010 as compared with 3% ater eiht

ears in scal 2009, which refects our estimate o lonterm maret and ross domestic product rowth. The

weihted-averae cost o capital used to discount uturecash fows raned rom 9% to 17% in scal 2010 as com-pared with 11% to 17% in scal 2009. The rane o maret

multiples used in our scal 2010 impairment testin wasrom 0.5 to 3 times trailin-twelve-month sales and 9 to 12

times trailin-twelve-month earnins beore interest, taxes

and depreciation and amortiation. The rane o maret

multiples used in our scal 2009 impairment testin wasrom 2 to 3 times trailin-twelve-month sales and 10 times

trailin-twelve-month earnins beore interest, taxes anddepreciation and amortiation. Future chanes in these

estimates and assumptions could materiall aect the

results o our reviews or impairment o oodwill. How-

ever, a decrease o 30 basis points in our terminal rowthrate or an increase o 30 basis points in our weihted-

averae cost o capital would still result in a air value

calculation exceedin our boo value or each o our

reportin units, except or the Ojon reportin unit,

see Managements Discussion and Analysis o Financial

Condition and Results o Operations Goodwill, Other

gOODWILL, OTHER INTANgIBLE ASSETS ANDLONg-LIVED ASSETSgoodwill is calculated as the excess o the cost o pur-

chased businesses over the air value o their underlin

net assets. Other indeinite-lived intanible assets

principall consist o trademars. goodwill and other

indenite-lived intanible assets are not amortied.

We assess oodwill and other indenite-lived intani-bles at least annuall or impairment as o the beinnino the scal ourth quarter, or more requentl i certain

events or circumstances warrant. We test oodwill or

impairment at the reportin unit level, which is one levelbelow our operatin sements. We identi our reportinunits b assessin whether the components o our operat-

in sements constitute businesses or which discrete

nancial inormation is available and manaement o each

reportin unit reularl reviews the operatin results o

those components. We mae certain judments and

assumptions in allocatin assets and liabilities to deter-mine carrin values or our reportin units. Impairmenttestin is perormed in two steps: (i) we determine impair-

ment b comparin the air value o a reportin unit withits carrin value, and (ii) i there is an impairment, we

measure the amount o impairment loss b comparin the

implied air value o oodwill with the carrin amount o

that oodwill. The impairment test or indenite-lived

intanible assets encompasses calculatin a air value o

an indenite-lived intanible asset and comparin the air

value to its carrin value. I the carrin value exceeds

the air value, impairment is recorded.Testin oodwill or impairment requires us to estimate

air values o reportin units usin sinicant estimates

and assumptions. The assumptions made will impact theoutcome and ultimate results o the testin. We use indus-

tr accepted valuation models and set criteria that are

reviewed and approved b various levels o manaementand, in certain instances, we enae third-part valuationspecialists to advise us. To determine air value o the

reportin unit, we enerall use an equal weihtin o

the income and maret approaches. In certain circum-

stances, equal weihtin will not be applied i one o thesemethods ma be less applicable (e.., onl the income

approach would be used or reportin units with eistinneative marins). We believe both approaches are

equall relevant and the most reliable indications o

air value because the air value o product or service

companies is more dependent on the abilit to enerateearnins than on the value o the assets used in the pro-duction process.

Under the income approach, we determine air value

usin a discounted cash fow method, projectin uture



requires judments about ta issues, potential outcomesand timin, and is a subjective critical estimate. We assess

our ta positions and record ta benets or all ears sub-ject to examination based upon manaements evaluation

o the acts, circumstances, and inormation available at

the reportin dates. For those tax positions where it is

more-liel-than-not that a tax benet will be sustained,

we have recorded the larest amount o tax benet with areater than 50% lielihood o bein realized upon settle-

ment with a tax authorit that has ull nowlede o all

relevant inormation. For those tax positions where it is

not more-liel-than-not that a tax benet will be sus-

tained, no tax benet has been reconized in the nancial

statements. We classi applicable interest and penalties

as a component o the provision or income taxes.

Althouh the outcome relatin to these exposures is

uncertain, in manaements opinion adequate provisionsor income taes have been made or estimable potential

liabilities emanatin rom these eposures. In certain cir-cumstances, the ultimate outcome o eposures and rissinvolves sinicant uncertainties which render them ines-timable. I actual outcomes dier materiall rom these

estimates, the could have a material impact on our results

o operations.

DERIVATIVESWe address certain nancial exposures throuh a con-

trolled proram o ris manaement that includes the use

o derivative nancial instruments. We primaril enter into

orein currenc orward and option contracts to reducethe eects o fuctuatin orein currenc echane ratesand interest rate derivatives to manae the eects o inter-

est rate movements on our areate liabilit portolio.

We also enter into orein currenc orward contracts and

ma use option contracts, not desinated as hedin

instruments, to mitiate the chane in air value o specic

assets and liabilities on the balance sheet. We do not

utilie derivative nancial instruments or tradin or spec-ulative purposes. Hede eectiveness is documented,

assessed and monitored b emploees who are qualied

to mae such assessments and monitor the instruments.Variables that are external to us such as social, political

and economic riss ma have an impact on our hedinproram and the results thereo.

Our derivative nancial instruments are recorded as

either assets or liabilities on the balance sheet and

measured at air value. All derivatives outstandin as o

June 30, 2010 are (i) desinated as a hede o the air

value o a reconied asset or liabilit or o an unreco-

nied rm commitment (air-value hede), (ii) desi-

nated as a hede o a orecasted transaction or o the

Intangible Assets and Long-Lived Assets.Chanes in the

valuation assumptions rom those used in the prior ear

primaril refect the impact o the current economic envi-ronment on the reportin units and their projected utureresults o operations.

To determine air value o other indenite-lived intan-

ible assets, we use an income approach, the relie-rom-

roalt method. This method assumes that, in lieu oownership, a third part would be willin to pa a roaltin order to obtain the rihts to use the comparable asset.Other indenite-lived intanible assets air values require

sinicant judments in determinin both the assets esti-

mated cash fows as well as the appropriate discount androalt rates applied to those cash fows to determine airvalue. Chanes in such estimates or the application o

alternative assumptions could produce sinicantl dier-

ent results.We review lon-lived assets or impairment whenever

events or chanes in circumstances indicate that the car-rin amount ma not be recoverable. When such eventsor chanes in circumstances occur, a recoverabilit test isperormed comparin projected undiscounted cash fows

rom the use and eventual disposition o an asset or assetroup to its carrin value. I the projected undiscountedcash fows are less than the carrin value, an impairment

would be recorded or the excess o the carrin value

over the air value, which is determined b discountin

uture cash fows.

INCOME TAxESWe account or income taes usin an asset and liabilitapproach that requires the reconition o deerred tax

assets and liabilities or the expected uture tax conse-

quences o events that have been reconized in our nan-

cial statements or tax returns. As o June 30, 2010, we

have current net deerred tax assets o $269.0 million and

non-current net deerred ta assets o $104.8 million. Thenet deerred tax assets assume sucient uture earnins

or their realiation, as well as the continued application

o currentl anticipated tax rates. Included in net deerred

tax assets is a valuation allowance o $38.5 million ordeerred tax assets, where manaement believes it is

more-liel-than-not that the deerred tax assets will not

be realied in the relevant jurisdiction. Based on our

assessments, no additional valuation allowance is required.

I we determine that a deerred tax asset will not be

realiable, an adjustment to the deerred tax asset will

result in a reduction o net earnins at that time.We provide tax reserves or ederal, state, local and

international exposures relatin to periods subject to

audit. The development o reserves or these exposures



Companies Inc., and net earnins attributable to The Este

Lauder Companies Inc. per diluted common share wouldbe an increase or decrease o approimatel $5.7 million,$7.0 million and $.03, respectivel.

RESULTS OF OPERATIONS

We manuacture, maret and sell beaut products includ-in those in the sin care, maeup, rarance and hair care

cateories which are distributed in over 150 countriesand territories. The ollowin table is a comparative sum-mar o operatin results rom continuin operations orscal 2010, 2009 and 2008 and refects the basis o pre-sentation described in Note 2 Summary o Signifcant

Accounting Policiesand Note 20 Segment Data and

Related Inormationo Notes to Consolidated Financial

Statements or all periods presented. Products and

services that do not meet our denition o sin care,

maeup, rarance and hair care have been included in

the other cateor.

variabilit o cash fows to be received or paid related to a

reconied asset or liabilit (orein currenc cash-fowhede), or (iii) not desinated as a hedin instrument.

Chanes in the air value o a derivative that is desinated

and qualies as a air-value hede that is hihl eectiveare recorded in current-period earnins, alon with the

loss or ain on the heded asset or liabilit that is attribut-

able to the heded ris (includin losses or ains on

unreconied rm commitments). Chanes in the airvalue o a derivative that is desinated and qualies as aorein currenc cash-fow hede o a orein-currenc-

denominated orecasted transaction that is hihl eec-

tive are recorded in other comprehensive income (loss)

(OCI). gains and losses deerred in OCI are then reco-

nied in current-period earnins when earnins are

aected b the variabilit o cash fows o the heded

orein-currenc-denominated orecasted transaction

(e.., when periodic settlements on a variable-rate asset or

liabilit are recorded in earnins). Chanes in the air

value o derivative instruments not desinated as hedininstruments are reported in current-period earnins.

For a discussion on the quantitative impact o maret

riss related to our derivative nancial instruments, see

Managements Discussion and Analysis of FinancialCondi-

tion and Results of Operations Liquidity and Capital

Resources Market Risk.

QUANTITATIVE ANALySISDurin the three-ear period ended June 30, 2010 therehave not been material chanes in the assumptions under-

lin these critical accountin policies, nor to the relatedsinicant estimates. The results o our business underl-in these assumptions have not diered sinicantl rom

our epectations.While we believe that the estimates that we have made

are proper and the related results o operations or the

period are presented airl in all material respects, other

assumptions could reasonabl be justied that would

chane the amount o reported net sales, cost o sales,

operatin epenses or our provision or income taes asthe relate to the provisions or anticipated sales returns,allowance or doubtul accounts, inventor obsolescencereserve and income taes. For scal 2010, had these esti-mates been chaned simultaneousl b 2.5% in either

direction, our reported ross prot would have increasedor decreased b approximatel $4.8 million, operatin

expenses would have chaned b approximatel $0.9 mil-

lion and the provision or income taxes would have

increased or decreased b approximatel $1.3 million.

The collective impact o these chanes on operatin

income, net earnins attributable to The Este Lauder



yEAR ENDED JUNE 30 2010 2009 2008(In millions)

NET SALESBy Region:

The Americas $3,442.1 $3,421.2 $3,711.5Europe, the Middle East & Arica 2,859.3 2,611.3 3,006.7Asia/Pacic 1,510.1 1,299.4 1,192.6

7,811.5 7,331.9 7,910.8Returns associated with restructurin activities (15.7) (8.1)

$7,795.8 $7,323.8 $7,910.8By Product Category:

Sin Care $3,227.1 $2,886.0 $2,996.8Maeup 2,978.2 2,830.9 3,000.4Frarance 1,136.9 1,150.9 1,432.0Hair Care 413.9 402.4 427.1Other 55.4 61.7 54.5

7,811.5 7,331.9 7,910.8Returns associated with restructurin activities (15.7) (8.1)

$7,795.8 $7,323.8 $7,910.8

OPERATINg INCOME (LOSS)By Region:

The Americas $ 161.5 $ 115.2 $ 228.3Europe, the Middle East & Arica 500.8 229.7 433.1Asia/Pacic 212.3 165.2 149.7

874.6 510.1 811.1Total chares associated with restructurin activities (84.7) (91.7) (0.4)

$ 789.9 $ 418.4 $ 810.7

By Product Category:Sin Care $ 434.3 $ 294.1 $ 405.6Maeup 416.8 279.8 359.4Frarance 26.3 (60.8) 36.2Hair Care (6.2) 1.1 11.5Other 3.4 (4.1) (1.6)

874.6 510.1 811.1

Total chares associated with restructurin activities (84.7) (91.7) (0.4) $ 789.9 $ 418.4 $ 810.7

2010

$3,442.12,859.31,510.1

7,811.5(15.7)

$7,795.8

$3,227.1, 8.

1,136.9413.9

55.4

,8 .5(15.7)

$7,795.8

$ 161.5500.8.3

874.6(84.7

789.9

434.3416.8

26.3(6.23.4

874.6

(84.7$ 789.9

The ollowin table presents certain consolidated earnins data as a percentae o net sales:

yEAR ENDED JUNE 30 2010 2009 2008

Net sales 100.0% 100.0% 100.0%Cost o sales 23.5 25.7 25.2

gross prot 76.5 74.3 74.8

Operatin epenses:Sellin, eneral and administrative 65.0 66.7 64.3

Restructurin and other special chares 0.8 1.0 goodwill impairment 0.2 0.2 Impairment o other intanible and lon-lived assets 0.4 0.7 0.2

66.4 68.6 64.5

Operatin income 10.1 5.7 10.3Interest epense, net 1.0 1.0 0.9Interest epense on debt etinuishment 0.3

Earnins beore income taes 8.8 4.7 9.4Provision or income taes 2.6 1.6 3.3

Net earnins 6.2 3.1 6.1Net earnins attributable to noncontrollin interests (0.1) (0.1) (0.1)

Net earnins attributable to The Este Lauder Companies Inc. 6.1% 3.0% 6.0%

2010

100.023.5

76.5

65.0

0.80.20.4

66.4

10.11.00.3

8.82.6

.(0.1)

6.1%



retail environment in North America to continue to be

challenin, we reconie the need to restore protablerowth in our traditional department store channel. We

have implemented chanes to reshape our oraniation

to meet the needs o the chanin retail landscape.

Internationall, we plan to achieve protable rowth in

European perumeries and pharmacies and in department

stores in Asia, while accentuatin our maeup and sin

care initiatives to boost our travel retail business and con-tinuin eorts to row online, specialt retailers and pres-

tie salons. To optimie our portolio, we will ocus on

improvin our marins and share in our distribution chan-

nels. We plan to re-enerize certain o our brands throuh

the introduction o products that eature advances in

research and technolo. At the same time, we will be

investin in initiatives to incubate and develop net en-eration products and brands, as well as drivin turnaround

brands toward sustainable protabilit levels. We intend

to leverae our reional oraniations to increase eec-

tiveness and eciencies while utiliin strateic partner-

ships, alliances and licensin to build scale in research and

development, distribution and third-part manuacturin.Durin scal 2010, the rst ear o our strate, our

business continued to rebound rom the lobal economic

challenes and uncertainties that had a sinicant impact

on our results durin the prior scal ear. Despite these

conditions, some o which continue to exist, our results

or the ear ended June 30, 2010 eceeded our net salesand protabilit expectations that we had at the bein-

nin o the scal ear. These results, in part, stem rom

stroner net sales, and savins achieved in connection

with our multi-aceted cost savins proram, includin

avorable product mix (which refects our strateic empha-

sis on sin care products), resizin, restructurin and other

cost containment initiatives. The improved net sales

refected rowth in our three larest brands, continued

stron rowth in Asia, a substantial rebound in the

Compans travel retail business and a better-than-

epected holida sellin season in the United States andthe United kindom. Net sales also beneted rom urther

avorabilit in orein currenc translation.Durin most o scal 2010, we enaed in a more stra-

teicall ocused approach to spendin in liht o the

lobal economic downturn and the manaement o sev-eral external potential riss which did not materialie in

the current ear. This was accomplished, in part, b ee-cutin on certain initiatives desined to drive out non-

value added costs, optimie productivit and increase

In order to meet the demands o consumers, we continu-all introduce new products, support new and established

products throuh advertisin, samplin and merchandis-in and phase out eistin products that no loner meetthe needs o our consumers. The economics o develop-in, producin, launchin and supportin products

infuence our sales and operatin perormance each

period. The introduction o new products ma have some

cannibaliin eect on sales o existin products, whichwe tae into account in our business plannin.

We operate on a lobal basis, with the majorit o ournet sales enerated outside the United States. Accord-

inl, fuctuations in orein currenc echane rates canaect our results o operations. Thereore, we present cer-

tain net sales inormation excludin the eect o orein

currenc rate fuctuations to provide a ramewor or

assessin the perormance o our underlin business

outside the United States. Constant currenc inormationcompares results between periods as i exchane rates

had remained constant period-over-period. We calculateconstant currenc inormation b translatin current-

period results usin prior-ear period weihted averae

orein currenc echane rates.

OVERVIEWWe believe that the best wa to increase stocholder

value is to provide our customers and consumers with the

products and services that the have come to expect rom

us in the most ecient and protable manner while rec-oniin their chanin shoppin habits. To achieve ouroal to be the lobal leader in prestie beaut, we are

implementin a lon-term strate to uide the Compan

throuh scal 2013. The plan has numerous initiatives

across reions, product cateories, brands and unctionsthat are desined to leverae our strenths, mae us more

cost ecient and row our sales.As part o our strate, we plan to shit our cateor

mi towards hiher marin cateories with reater lobalrowth potential. Sin care, our most protable cateor,is a strateic priorit or our innovation and investment

spendin, particularl in the Asia/Pacic reion. We alsoplan to strenthen our eoraphic presence b seein

share rowth in lare, imae-buildin cities within core

marets such as the United States, the United kindom,

France, Ital and Japan. In addition, we will continue to

prioritie eorts to expand our presence and accelerate

share rowth in emerin marets such as China, Russia,the Middle East and Eastern Europe. While we epect the



countries where there remain sot retail environments,

select retailer destocin and tiht worin capital man-

aement activities b retailers.At this time, our business in the Asia/Pacic reion has

been least aected b the lobal economic uncertainties,

with net sales rowin in all countries in the reion,

several o which refected sinicant avorable impact oorein currenc translation. Net sales in China rose at a

ast pace as we continue our rowth in this emerin mar-et. New sin care product launches and an improvin

retail environment helped most countries in the reion

enerate stron net sales increases durin scal 2010.

Our business in Japan continued to be challenin due to

diicult economic conditions, as reported net sales

increases were enerated b the strenthenin o the

Japanese en.Looin ahead to scal 2011, we believe we have a

stron, diverse brand portolio with lobal reach and

potential. We have a histor o outstandin creativit,

innovation and entrepreneurship, and initial successes inexpandin our Hih-Touch service model beond depart-

ment stores, and believe we have a passionate, hihl-

talented wororce to help us achieve our lon-term

strate. Our balance sheet, cash fows and ross marinare stron. However, we continue to operate in a chal-

lenin environment. We have a number o areas to

improve, includin urther enhancements to our cost

structure, sharin operational best practices internall,

increasin trac to where our products are sold, and

urther diversication o distribution channels.

CHARgES ASSOCIATED WITHRESTRUCTURINg ACTIVITIESIn an eort to drive down costs and achieve sneries

within our oranization, in Februar 2009, we announced

the implementation o a multi-aceted cost savins pro-

ram (the Proram) to position the Compan to achieve

lon-term protable rowth. We anticipate the Proram

will result in related restructurin and other special

chares, inclusive o cumulative chares recorded to date

and over the net ew scal ears, totalin between $350million and $450 million beore taes.

We expect that the implementation o this Proram,

combined with other on-oin cost savins eorts, will

result in savins o approximatel $450 million to $550

million (beinnin with approximatel $360 million o sav-

ins in scal 2010) includin the reduction o certain costs

relative to an assumed normalied spendin pattern. Our

nancial discipline. Althouh we remain cautious reard-in lobal economic uncertainties and other riss that

ma aect our business, we accelerated investment

spendin behind our brands and e priorities durin thelatter part o the scal ear.

In the Americ

TheEsteeLauderCompaniesInc 2010 AR-Web

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